In the stock market, futures and options are financial derivatives that are based on the value of an underlying asset, such as a stock, index, or commodity.
Futures contracts: A futures contract is an agreement to buy or sell a certain asset at a predetermined price on a specific date in the future. The buyer of a futures contract is obligated to purchase the underlying asset on the contract's expiration date, while the seller is obligated to sell the asset. Futures contracts are often used to hedge against price fluctuations in the underlying asset.
Options: An option is a contract that gives the holder the right, but not the obligation, to buy or sell a certain asset at a predetermined price on or before a specific date in the future. There are two types of options: call options and put options. A call option gives the holder the right to buy the underlying asset, while a put option gives the holder the right to sell the asset. Options are often used to speculate on the direction of the market or to hedge against potential price movements.
Both futures and options are traded on exchanges and have the potential to generate significant profits or losses. It is important to have a thorough understanding of these financial instruments before trading them.
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